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A Comprehensive Guide to Preparer Penalties

Preparer penalties are like poison ivy.

They lurk around every corner, and despite your best efforts, even the slightest step off the path of (tax return) righteousness can lead to a wholly uncomfortable time.  This article provides a comprehensive, step-by-step analysis of each of the preparer penalties under the Code, both civil and, yes, even criminal and examines, where possible, how to avoid them (after the fact – sort of like an administrative calamine lotion).

So, what is a preparer penalty, and to whom do they apply?

Who is a Preparer?

A “tax return preparer” is any person that prepares (for compensation, or who employs one or more persons to prepare for compensation) any tax return under the Code (income, gift, estate, excise, etc.) or any claim for refund or credit of such tax.[1] The preparation of a substantial portion of a return or claim for refund shall be treated as if it were the preparation of such return or claim for refund.[2]

Notwithstanding the broad definition of tax return preparer, there are four exceptions to the general rule.[3]  Someone who merely provides mechanical or clerical assistance is not a preparer.[4] Similarly, someone who prepares a return or claim for an employer (by whom he is regularly and continuously employed) or someone who prepares a return as a fiduciary is not a preparer.[5] Finally, someone who prepares a claim for refund for a taxpayer in response to a notice of deficiency or otherwise as the result of an audit is not a return preparer.[6] The Treasury Regulations establish an even more detailed framework as to who qualifies as (and who are excluded from the definition of) a return preparer.[7]

An individual may be a “signing” or “nonsigning” tax return preparer.[8] A signing tax return preparer is the individual who has the primary responsibility for the overall substantive accuracy of the preparation of the return or claim for refund or credit.[9] A nonsigning tax return preparer is any tax return preparer who is not a signing tax return preparer but who prepares all or a substantial portion of a return or claim for refund.[10]

Only a person who prepares all or a substantial portion of a return or claim for refund shall be considered to be a tax return preparer of the return or claim for refund.[11] A person who renders tax advice on a position that is directly relevant to the determination of the existence, characterization, or amount of an entry on a return or claim for refund will be regarded as having prepared that entry.[12] Factors to be considered in determining whether a portion of a return or claim is substantial include the size and complexity of the item relative to the taxpayer’s gross income and the size of the understatement attributable to the item compared to the taxpayers reported tax liability.[13] There are additional rules regarding non-signing prepares vis-à-vis the “substantial portion” analysis,[14] but they are a bit esoteric, even for this article.

Interestingly, a tax return preparer with respect to one return is not considered to be a tax return preparer of another return merely because an entry or entries reported on the first return may affect an entry reported on the other return, unless the entry or entries reported on the first return are directly reflected on the other return and constitute a substantial portion of the other return.[15] Any person may be considered a tax return preparer without regard to their educational qualifications or professional status requirements, so long as they otherwise meet the definitions set forth in the Code and Treasury Regulations.[16] Further, a person who prepares a return or claim outside the United States is still considered a preparer for purposes of the Code and Treasury Regulations, regardless of the person’s nationality, residence, or the location of the person’s place of business.[17]

Understatement of Tax Liability – The Most Common Preparer Penalty

Understatements happen. A simple understatement based on mathematical or transcription error will generally not trigger a preparer penalty.[18] Instead, IRC § 6694 imposes a penalty for a tax return preparer who has adopted an “unreasonable position” or who has engaged in “willful or reckless conduct” in the preparation of a tax return.[19] for purposes of IRC § 6694, and “understatement of liability” is any understatement of the net amount payable to the IRS with respect to any tax imposed by the Code or any overstatement of the net amount refundable or creditable with respect to such tax.[20] Thus, the definition of understatement includes both understated income as well as overstated credits, deductions, or exemptions. The penalty under IRC § 6694(a) and (b) will be abated where the taxpayer’s liability is not understated.[21]

An Unreasonable Position

Although, as noted above, a simple understatement will generally not result in a preparer penalty, if a preparer assumes an unreasonable position, he or she will be liable for a fine of the greater of $1,000 or one half of the income earned by the taxpayer related to the position.[22] The preparer’s liability arises when the preparer knew (or reasonably should have known) about the position and either (i) the position is with respect to a tax shelter (as defined in IRC § 6662(d)(2)(C)(ii)) or a reportable transaction (to which IRC § 6662A applies), and it was not reasonable to believe that the position would more likely than not be sustained on its merits; (ii) the position was not disclosed, the position is not with respect to a tax shelter or a reportable transaction; or (iii) the position was disclosed, but there was no reasonable basis for the position.[23]

Looking back to the previous sentence (the length of which Faulkner would be proud), we see three standards that must be met to overcome the presumption of a return preparer taking an unreasonable position, which position led to an understatement of liability.

The first standard, with respect to a tax shelter or a reportable transaction, is that the position must be “more likely than not” to be sustained on its merits.[24] This means that there must be a greater than 50% possibility that the position would be sustainable if examined by the tax authorities.[25]

The second standard, with respect to undisclosed positions, is that the position must be supported by “substantial authority.”[26] This means that the weight of the authorities supporting the treatment is substantial in relation to the weight of authorities supporting a contrary treatment. The standard is less stringent than the “more likely than not” standard (>50% chance of success) but more stringent than the reasonable basis standard (20% chance of success).[27] We will discuss this “more likely than not” standard a bit further below.

The final position, which applies to all tax issues other than tax shelters or reportable transactions is that the position taken must have a “reasonable basis.”[28] The IRC § 6694(a) penalty will not be imposed on a tax return preparer if the position taken (other than a position with respect to a tax shelter or a reportable transaction) has a reasonable basis and is adequately disclosed within the meaning of Treas. Reg. § 1.6694-2(d)(3). As noted above, a reasonable basis standard is a low threshold, about a 20% chance of success.  We will discuss adequate disclosure in greater detail below.

The “More Likely Than Not” Standard Explained

If a position is with respect to a tax shelter (IRC § 6662(d)(2)(C)(ii)) or a reportable transaction to which IRC § 6662A applies, it is “reasonable to believe that a position would more likely than not be sustained on its merits” if the tax return preparer analyzes the pertinent facts and authorities and, in reliance upon that analysis, reasonably concludes in good faith that the position has a greater than 50 percent likelihood of being sustained on its merits.[29] Whether or not the IRS will challenge the position or audit the return may not be taken into account.[30] The position must satisfy such standard on the date the return is deemed prepared.[31]

The Substantial Authority Standard Explained

Substantial authority is defined under Treas. Reg. § 1.6662-4(d)(3)(ii) for purposes of determining whether substantial authority is present applies for purposes of determining whether the more likely than not standard is satisfied.[32]  All facts and circumstances are taken into account, including the preparer’s “diligence,” which takes into account the preparer’s experience in the area and familiarity with the taxpayer’s affairs, as well as the complexity of the issues and facts.[33]

For purposes of determining whether it is reasonable to believe that the position would more likely than not be sustained on the merits, a tax return preparer may rely in good faith without verification upon information furnished by the taxpayer and information and advice furnished by another advisor, another tax return preparer, or other party (including another advisor or tax return preparer at the tax return preparer’s firm), as provided in Treas. Reg. § 1.6694-1(e) and Treas. Reg. § 1.6694-2(e)(5).[34] Further, the preparer may avoid the IRC § 6694(a) penalty by taking the position that the position satisfied the “more likely than not” standard and the taxpayer is the subject of a “written determination” from the IRS as provided by Treas. Reg. § 1.6662-4(d)(3)(iv)(A).[35]

The Reasonable Basis Standard Explained

If the position was “adequately disclosed” and it is not a tax shelter or reportable transaction, a position is unreasonable only if there is not a “reasonable basis” for the position.[36] Reasonable basis has the same meaning as it has under the accuracy-related penalty regulations contained in Treas. Reg. § 1.6662-3(b)(3). As with the substantial authority standard, for purposes of the reasonable basis test, a tax return preparer may rely in good faith without verification upon information furnished by the taxpayer and information and advice furnished by another advisor, another tax return preparer, or other party (including another advisor or tax return preparer at the tax return preparer’s firm).[37]

Adequate Disclosure Defined

What exactly constitutes adequate disclosure? For a signing preparer, disclosure of the position may be made in one of three ways. First, the position may be disclosed in accordance with Treas. Reg. § 1.6662-4(f), which permits disclosure on a properly completed and filed Form 8275 (Disclosure Statement for Position Taken Under a Code Section) or Form 8275-R (Disclosure Statement for Position Taken Under a Regulation) or on the tax return in accordance with Treas. Reg. § 1.6662-4(f)(2) and the Revenue Procedure described therein.[38] Second, the preparer may provide the taxpayer with a prepared return including the disclosure required by Treas. Reg. § 1.6662-4(f).[39] Third, for returns or claims for refund that are subject to accuracy -related penalties (other than the substantial understatement penalty) the preparer may advise the taxpayer of the penalty standards applicable to the taxpayer under IRC § 6662 and contemporaneously document the advice in the preparer’s files.[40] For pass-through entities, disclosure must be made at the entity level.[41] Once again, there are additional specific rules pertaining to nonsigning return preparers; however, these rules are long, a satiric, and outside the purview of this article.[42]

Reasonable Cause Exception and Good Faith

No penalty will be imposed under IRC § 6694(a) if the preparer can show that there is reasonable cause for the understatement, and the preparer acted in good faith.[43] all facts and circumstances are considered in determining whether the understatement was due to reasonable cause and that the preparer acted in good faith.[44] There are six specific factors that are considered in the analysis of reasonable cause and good faith.

Nature of Error

Reasonable cause may exist if the error resulted from a provision that was complex, uncommon, or highly technical, and a competent tax return preparer of tax returns or claims for refund of the type at issue reasonably could have made the error.[45]  The reasonable cause and good faith exception, however, does not apply to an error that would have been apparent from a general review of the return or claim for refund by the tax return preparer.[46]

Frequency of Errors

Reasonable cause may exist if the understatement was the result of an isolated error (such as an inadvertent mathematical or clerical error) rather than a number of errors.[47]  Even still, the reasonable cause and good faith exception will not apply if the isolated error is so obvious, flagrant, or material that it should have been discovered during a review of the return or claim for refund.[48]  Furthermore, the reasonable cause and good faith exception does not apply if there is a pattern of errors on a return or claim for refund even though any one error, in isolation, would have qualified for the reasonable cause and good faith exception.[49]

Materiality of Errors

Reasonable cause may exist if the understatement was not material in relation to the correct tax liability.[50]  The reasonable cause and good faith exception generally applies if the understatement is of a relatively immaterial amount.[51]  Nevertheless, even an immaterial understatement may not qualify for the reasonable cause and good faith exception if the error or errors creating the understatement are sufficiently obvious or numerous.[52]

Normal Office Practice

Reasonable cause may exist if the tax return preparer’s normal office practice, when considered together with other facts and circumstances, such as the knowledge of the tax return preparer, indicates that the error in question would occur rarely and the normal office practice was followed in preparing the return or claim for refund in question.[53]

Reliance on Advice of Others

The tax return preparer may rely in good faith on the advice of, or schedules or other documents prepared by, the taxpayer, another advisor, another tax return preparer, or other party (including another advisor or tax return preparer at the tax return preparer’s firm), who the tax return preparer had reason to believe was competent to render the advice or other information.[54]  The advice or information may be written or oral, but in either case the burden of establishing that the advice or information was received is on the tax return preparer.[55]  A tax preparer is not considered to have relied in good faith if (1) the advice is unreasonable on its face; (2) the preparer knew or should have known that the party providing the advice was not aware of all relevant facts; (3) the tax preparer should have known at the time the return was prepared that the advice was no longer reliable due to developments in the law since the time the advice was given.[56]

Reliance on Administrative or Industry Practice

Reasonable cause may exist if the tax return preparer reasonably relied in good faith on generally accepted administrative or industry practice in taking the position that resulted in the understatement.[57]  A tax return preparer is not considered to have relied in good faith if the tax return preparer knew or should have known (given the nature of the tax return preparer’s practice), at the time the return or claim for refund was prepared, that the administrative or industry practice was no longer reliable due to developments in the law or IRS administrative practice since the time the practice was developed.[58]

Liability of Tax Return Preparer Firms

An entity (firm) that employs a tax return preparer, who is subject to a penalty under IRC § 6694(a) (or a firm of which the individual tax return preparer is a partner, member, shareholder or other equity holder) is also subject to penalty if, and only if (i) a member (or members) of the principal management (or principal officers) of the firm or a branch office participated in or knew of the conduct proscribed by IRC § 6694(a); (ii) the entity failed to provide reasonable and appropriate procedures for review of the position for which the penalty is imposed; or (iii) the entity disregarded its review procedures through willfulness, recklessness, or gross indifference in the formulation of the advice, or the preparation of the return or claim for refund, that included the position for which the penalty is imposed.[59]

An Understatement Due to Willful or Reckless Conduct

A preparer, who prepares a return or claim for refund or credit with respect to which any part of an understatement of liability is due to “willful or reckless conduct,” will be liable to a penalty in an amount equal to the greater of $5,000 or 75% of the income derived by the preparer with respect to the return or claim,[60] if any part of the understatement is due to (i) a willful attempt by the preparer to understate (in any manner) the liability for tax, or (ii) any reckless or intentional disregard of the Code, Treasury Regulations, or revenue rulings and notices issued by the IRS.[61]

Willful Attempt to Understate Liability

A preparer willfully attempts to understate liability if he or she disregards (in an attempt to wrongfully reduce the tax liability of the taxpayer) information furnished by the taxpayer or other persons, such as information concerning certain items of taxable income furnished by the taxpayer or other persons, the preparer is subject to the penalty.[62]

Reckless or Intentional Disregard of the Code, a Rule, or a Regulation

A preparer is considered to have recklessly or intentionally disregarded the a rule or a regulation,[63] if the preparer takes a position on the return or claim for refund that is contrary to the Code, a Treasury Regulation, an IRS revenue procedure, or an IRS notice; and the preparer knows of, or is reckless in not knowing of, the rule or regulation in question.[64] A preparer is reckless in not knowing of a rule or regulation if the preparer does not make an effort to determine whether a rule or regulation exists, of the facts and circumstances demonstrate a substantial deviation from the standard of conduct that a reasonable preparer would observe in the situation.[65]

There are two situations, however, where a taxpayer will not be considered to have recklessly or intentionally disregarded a rule or regulation when taking a position contrary to such rules and regulations. In the case of a challenge to a regulation, the preparer must have a reasonable basis for the position taken contrary to a regulation, and such position must be adequately disclosed.[66] The position must represent a good faith challenge to the validity of the regulation, and the preparer must identify the regulation being challenged.[67] In the case of a challenge to an IRS revenue ruling or notice, the position must meet the substantial authority standard and may not relate to a reportable transaction to which IRC § 6662A applies.[68]

Liability of Tax Return Preparer Firms

As with the unreasonable standard violation, an entity (firm) that employs a tax return preparer, who is subject to a penalty under IRC § 6694(a) (or a firm of which the individual tax return preparer is a partner, member, shareholder or other equity holder) is also subject to penalty if, and only if (i) a member (or members) of the principal management (or principal officers) of the firm or a branch office participated in or knew of the conduct proscribed by IRC § 6694(a); (ii) the entity failed to provide reasonable and appropriate procedures for review of the position for which the penalty is imposed; or (iii) the entity disregarded its review procedures through willfulness, recklessness, or gross indifference in the formulation of the advice, or the preparation of the return or claim for refund, that included the position for which the penalty is imposed.[69]

Extension of Period of Collection with Payment of 15% of Penalty

If a tax preparer is found liable for a preparer penalty, the preparer may pay 15% or more of the penalty within 30 days after notice and demand for payment of the penalty is made. This payment does two things. First, it enables the preparer to file a claim for refund of the amount paid, and, second, it prevents any levy or proceeding in court for the collection of the remainder of such penalty until the final resolution of the refund claim.[70] If the claim for refund is denied, and the preparer does not initiate a proceeding in a United States District Court for the termination of his liability for such penalty,[71] within 30 days thereof the IRS may levy against the preparer or initiate a proceeding in court for the collection of the remainder of the penalty.[72] The period of limitations for collection of a preparer penalty is suspended for the period during which the IRS is prohibited from collecting by levy or a proceeding in court.[73]

Other Assessable Preparer Penalties under IRC § 6695

In addition to the penalties under IRC § 6694 for unreasonable positions and reckless or willful attempts to understate liability, IRC § 6695 contains seven additional penalties that apply specifically to preparers.

Failure to Furnish Copy of Return to Taxpayer

Pursuant to IRC § 6107(a), a tax return preparer must furnish a completed copy of any prepared return or claim for refund or credit to the taxpayer not later than the time such return or claim is presented for the taxpayer’s signature.  A preparer that fails to comply with IRC § 6107(a) must pay penalty of $50 for such failure, unless it is shown that the failure was due to reasonable cause and not willful neglect.[74] The maximum penalty imposed on any person in a calendar year may not exceed $25,000.

Failure to Sign Return

A “signing” preparer, as described in Treas. Reg. § 301.7701-15(b)(1), must sign the return or claim for refund or credit after it is completed and before it is presented to the taxpayer for signature. In the case of electronically signed returns, the preparer need not sign the return prior to presenting a completed copy of the return to the taxpayer; however, the preparer must furnish all of the information that will be transmitted as the electronically signed tax return to the taxpayer at the same time that the preparer furnishes the Form 8879, (IRS e-File Signature Authorization) to the taxpayer.[75] The preparer should electronically signed the return in the manner prescribed by the guidance published by the IRS.

If a preparer fails to sign the return or claim for refund or credit, he or she will be subject to a penalty of $50 for each failure with the maximum of $25,000 per person per year.[76] no penalty will be assessed if the failure is shown to be due to reasonable cause and not willful neglect.[77] The reasonable cause statement must be submitted to the IRS in writing, and for purposes of this section reasonable cause is defined as “a cause that arises despite ordinary care and prudence exercised by the individual tax return preparer.”[78]

Failure to Furnish Identifying Number

Pursuant to IRC § 6109(a)(4), any return or claim for refund prepared by a tax return preparer must bear the preparer’s identifying number (PTIN).[79]  A preparer who fails to furnish its identifying number is subject to a penalty of $50 for each failure, with a maximum of $25,000 per person per year, unless it is shown that the failure is due to reasonable cause and not willful neglect.

Failure to Retain Copy or List

A tax return preparer must comply with IRC § 6107(b) must retain a completed copy of any return or claim for three years, or at the very least must retain on a list the name and taxpayer identification number of the taxpayer for whom such return or claim was prepared.[80] A preparer who fails to retain such returns or claims or to maintain such a list is liable for a $50 penalty for each such failure (That $25,000 per person per year), unless it is shown that the failure is due to reasonable cause and not willful neglect.

Failure to File Corrects Information Returns

A person who is subject to the reporting requirements of IRC § 6060 and Treas. Reg. § 1.6060-1 and who fails to satisfy these requirements shall pay a penalty of $50 for each such failure, with a maximum of $25,000 per person imposed for each calendar year, unless such failure was due to reasonable cause and not due to willful neglect.[81]

Negotiation of Check

A preparer, who endorses or otherwise negotiates (directly or through an agent) any check made in respect of the taxes imposed by this title which is issued to a taxpayer (other than the tax return preparer), shall pay a penalty of $500 with respect to each such check.[82] No penalty will be asserted if the full amount of the check is deposited into the taxpayer’s account in the taxpayer’s bank for the benefit of the taxpayer.

Failure to be Diligent in Determining Eligibility for Certain Tax Benefits

A preparer, who fails to comply with due diligence requirements imposed by the IRS with respect to determining a taxpayer’s eligibility to file as head of household,[83] or for the credit allowable by IRC § 24 (child tax credit), IRC § 25A(a)(1) (American Opportunity and Lifetime Learning credits), or IRC § 32 (earned income credit), shall pay a penalty of $500 for each such failure.

Penalties that May Apply to Preparers

In addition to the penalties listed above, six other penalties within the Code may apply to tax return preparers as well as other individuals.  Three are civil in nature, while the other three are criminal in nature.  The provisions related to the six penalties are complex, and we will only scratch the surface here to give you a general idea of other preparer penalties lurking in the tax aether. The civil penalties are quite substantial, and they are in addition to other penalties under the Code. Nonetheless, imposition of the three civil penalties may affect the assessment of other preparer penalties discussed above.[84]

Promotion of Abusive Tax Shelters – IRC § 6700

A promoter of the tax shelter (or other similar arrangement) who makes a false or fraudulent statement or a gross evaluation overstatement in connection with the tax shelter or similar arrangement (or sale thereof) may be subject to certain penalties. The penalty is assessed on the promoter not the investor.[85] If the penalty involves a false or fraudulent statement, the penalty will be equal to 50% of the gross income derived from such activity by the promoter.[86] For the gross evaluation overstatement the penalty is $1,000 for each organization or sale, or 100% of the promoter’s gross income derived from that activity, whichever is less.[87] as noted above, the penalty imposed by IRC § 6700 is in addition to any other penalty provided by law.[88]

Aiding and Abetting Understatement of Tax Liability – IRC § 6701

Any person who aids or assist in, procures, or advises with respect to the preparation or presentation of any portion of a return, affidavit, claim, or other document, which person knows (or has reason to believe) that such portion will be used in connection with any material matter arising under the revenue laws, and which person knows that such portion would result in an understatement of tax liability of another person is liable for penalty under IRC § 6701.[89]

If the tax described in the previous statement relates to the tax liability of a corporation, the penalty imposed by IRC § 6701 is $10,000.[90] If, on the other hand, the understatement does not relate to a corporation, the penalty is $1,000 per taxpayer per taxable period or event.[91]

The penalty for aiding and abetting the understatement of the tax liability is in addition to any other penalty provided by law…except when it isn’t.[92] There are two situations where the aiding and abetting penalty trumps a more specific penalty. First, no preparer penalty may be assessed under IRC § 6694(a) or (b) on any person with respect to any document for which an aiding and abetting penalty is assessed under IRC § 6701(a).[93]  Second, no promotion of tax shelter penalty shall be assessed under IRC § 6700 on any person with respect to any document for which an aiding and abetting penalty is assessed under IRC § 6701(a).[94]

Disclosure or Use of Information by Preparers of Returns – IRC § 6713

If a preparer discloses or uses information obtained in the preparation of an income tax return without authorization, the preparer will be liable for a $250 penalty for each unauthorized disclosure or use of information, with the maximum penalty on any one person being $10,000 per year.[95]  in the case of disclosure or use that is made in connection with the crime relating to the misappropriation of another person’s taxpayer identity, the minimum penalty rises to $1,000 and the maximum aggregate penalty rises to $50,000.

Fraud and False Statements – IRC § 7206

Any person who willfully makes a declaration under penalties of perjury which he does not believe to be true and correct as to every material matter, willfully aids in the preparation or presentation of a false document, removes or conceals goods or commodities for which any tax is or should be imposed with the intent to evade or defeat the assessment or collection of tax, or performs other enumerated and unauthorized acts to defraud the IRS, is guilty of a felony, and upon conviction, will be fined not more than $100,000 ($500,000 in the case of a corporation) or imprisoned not more than three years, or both, together with the costs of prosecution.[96]

Fraudulent Returns, Statements, or Other Documents – IRC § 7207

Any person who willfully delivers or discloses to the Secretary any list, return, information return, account, statement, or other document, known by him to be fraudulent or to be false as to any material matter, will be fined not more than $10,000 ($50,000 in the case of a corporation), or will be imprisoned not more than 1 year, or both.

Disclosure or Use of Information by Preparers of Returns – IRC § 7216

Similar to the unauthorized disclosure penalties under IRC § 6713 no tax return preparer may knowingly or recklessly disclose any information furnished to him in connection with the preparation of any return, nor may he use any information provided to him other than to prepare or assist in preparing any such return, state and local tax returns, and declarations of estimated tax of the person to whom the information relates.[97] If the preparer uses the information or discloses the information without the authorization of the taxpayer, he is guilty of a misdemeanor and a fine of not more than $1,000 (or $100,000 in the case of the disclosure or use to which IRC § 6713(b) (identity theft) applies) or imprisonment not more than one year, or both.

Conclusion

The exposure of the tax preparer is substantial (not unlike a naked hiker in woods filled with Toxicodendron radicans).  It is critical that all return preparers understand the substantial penalties that may apply if they dangle one toe in the wrong pond.  It is not uncommon for a taxpayer to understate their liability; if it were, tax controversy attorneys would be out of a job, and then what would support my Amazon habit and gardening addiction? Because the understatements of liability run rampant, it is critical for return preparer to understand his or her role in presenting a questionable position to the IRS. There is a fine line between zealous advocacy of a client’s position in putting one’s neck on the line unnecessarily.

Be cautious. Understand the risks and potential penalties. And dear God, remember the mantra “leaves of three, let it be” or even “side leaflets like mittens will itch like the dickens,” if you’re full of childish whimsy this fine October morning.  If you’re from Florida, taking photographs on the coast of Carmel, California, also know that poison oak does not look the same in there as it does back in the sunshine state.

Ask me how I know.


Footnotes:

[1] IRC § 7701(a)(36)(A).

[2] Id.

[3] Treas. Reg. § 301.7701-15(f).

[4] IRC § 7701(a)(36)(B); Treas. Reg. § 301.7701-15.

[5] Id.

[6] Id.

[7] Treas. Reg. § 301.7701-15 (general framework); Treas. Reg. § 301.7701-15(f) (detailed list of non-return preparers).

[8] Treas. Reg. § 301.7701-15(b)(1)-(2).

[9] Treas. Reg. § 301.7701-15(b)(1).

[10] Treas. Reg. § 301.7701-15(b)(2).

[11] Treas. Reg. § 301.7701-15(b)(3)(i).

[12] Id.

[13] Treas. Reg. § 301.7701-15(b)(2)(i)(A)-(B).

[14] Treas. Reg. § 301.7701-15(b)(2)(ii).

[15] Treas. Reg. § 301.7701-15(b)(2)(iii).

[16] Treas. Reg. § 301.7701-15(d).

[17] Treas. Reg. § 301.7701-15(e).

[18] See, e.g., Treas. Reg. § 1.6694-2(b) (reasonable cause).

[19] IRC § 6694(b)(1)-(2); Treas. Reg. § 1.6694-3.

[20] IRC § 6694(e).

[21] Treas. Reg. § 1.6694-1(d).

[22] IRC § 6694(a)(2); Treas. Reg. § 1.6694-2(a)(1).

[23] Treas. Reg. § 1.6694-2(a)(1)(i)-(iii).

[24] Treas. Reg. § 1.669402(a)(1)(i).

[25] Treas. Reg. § 1.6662-4(d)(2)-(3).

[26] Treas. Reg. § 1.669402(a)(1)(ii).

[27] Treas. Reg. § 1.6662-4(d)(2)-(3).

[28] Treas. Reg. § 1.6694-2(a)(1)(iii).

[29] Treas. Reg. § 1.6694-2(b)(1).

[30] Id.

[31] Treas. Reg. § 1.6694-2(b)(5).

[32] Id.

[33] Id.

[34] Id.

[35] Treas. Reg. § 1.6694-1(b)(3).

[36] IRC § 6694(a)(2)(B); Treas. Reg. § 1.6694-1(d).

[37] Id. (citing Treas. Reg. § 1.6694-1(e) and Treas. Reg. § 1.6694-2(e)(5)).

[38] Treas. Reg. § 1.6694-1(d)(3)(i)(A).

[39] Treas. Reg. § 1.6694-1(d)(3)(i)(B)

[40] Treas. Reg. § 1.6694-1(d)(3)(i)(C).

[41] Treas. Reg. § 1.6694-1(d)(3)(iv).

[42] Treas. Reg. § 1.6694-1(d)(3)(ii).

[43] IRC § 6694(a)(3); Treas. Reg. § 1.6694-2(e).

[44] Treas. Reg. § 1.6694-2(e).

[45] Treas. Reg. § 1.6694-2(e)(1).

[46] Id.

[47] Treas. Reg. § 1.6694-2(e)(2).

[48] Id.

[49] Id.

[50] Treas. Reg. § 1.6694-2(e)(3).

[51] Id.

[52] Id.

[53] Treas. Reg. § 1.6694-2(e)(4).

[54] Treas. Reg. § 1.6694-2(e)(5).

[55] Id.

[56] Id.

[57] Treas. Reg. § 1.6694-2(e)(6).

[58] Id.

[59] Treas. Reg. § 1.6694-2(a)(2).

[60] IRC § 6694(b)(1); Treas. Reg. § 1.6694-3(a)(1)(i)-(ii), (b)-(c).

[61] Treas. Reg. § 1.6694-3(a)(1)(i)-(ii).

[62] Treas. Reg. § 1.6694-3(b).

[63] As defined by Treas. Reg. § 1.6694-3(f).

[64] Treas. Reg. § 1.6694-3(c)(1).

[65] Id.

[66] Treas. Reg. § 1.6694-3(c)(2).

[67] Id.

[68] Treas. Reg. § 1.6694-3(c)(3).

[69] Treas. Reg. § 1.6694-3(a)(2).

[70] IRC § 6694(c)(2); Treas. Reg. § 1.6694-4.

[71] Treas. Reg. § 1.6694(b).

[72] IRC § 6694(c)(3); Treas. Reg. § 1.6694-4(a)(5).

[73] IRC § 6694(c)(3); Treas. Reg. § 1.6694-4(c).

[74] IRC § 6695(a); Treas. Reg. § 1.6695-1(a).

[75] IRC § 6695(b); Treas. Reg. § 1.6695-1(b).

[76] Id.

[77] Id.

[78] Treas. Reg. § 1.6695-1(b)(3).

[79] IRC § 6695(c); Treas. Reg. § 1.6695-1(c)(1).

[80] IRC § 6695(d); Treas. Reg. § 1.6695-1(d).

[81] IRC § 6695(e); Treas. Reg. § 1.6695-1(e).

[82] IRC § 6695(f); Treas. Reg. § 1.6695-1(f).

[83] As defined by IRC § 2(b).

[84] If a prepare is liable for an IRC § 6701 aiding and abetting penalty, for example, no IRC § 6694(a) or (b) penalties may be asserted.

[85] IRC § 6700(a).

[86] IRC § 6700(a)(2).

[87] IRC § 6700(b).

[88] IRC § 6700(c).

[89] IRC § 6701(a)(1)-(3).

[90] IRC § 6701(b)(2).

[91] IRC § 6701(b)(3).

[92] IRC § 6701(f)(1).

[93] IRC § 6701(f)(2).

[94] IRC § 6701(f)(3).

[95] IRC § 6713(a).

[96] IRC § 6713(1)-(5).

[97] IRC § 7216(a)-(b).

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